Airlines try to regain distribution control with fees for unapproved booking channels

Their moves follow close on the heels of announcements by Sabre and, more reluctantly, Galileo that they will introduce "opt-in" programs in which agencies trade some of their booking incentive payments for access to full content.

Worldspan also had hinted for some weeks that it would unveil an opt-in program, the details of which it would reveal "later this year."

But American Airlines effectively "outed" Worldspan's plans when it introduced its "Source Premium Program," and Worldspan was forced to reveal details of the program much earlier than it had planned.

Their moves follow close on the heels of announcements by Sabre and, more reluctantly, Galileo that they will introduce "opt-in" programs in which agencies trade some of their booking incentive payments for access to full content. Worldspan also had hinted for some weeks that it would unveil an opt-in program, the details of which it would reveal "later this year." But American Airlines effectively "outed" Worldspan's plans when it introduced its "Source Premium Program," and Worldspan was forced to reveal details of the program much earlier than it had planned. The moves by the airlines and the GDS companies have created dislocation in the traditional travel agency distribution system; not since airline commission cuts began in 1995 have agencies collectively faced such difficult choices. The developments force all the parties to reconsider who really controls airline distribution. "There is a lot of confusion among most agency owners as they wait to see how all of this pans out," Richard Eastman, president of The Eastman Group, a travel industry software developer and technology consultant in Irvine, Calif., said. And the flurry of attempts to move distribution costs around once again points to a bizarre fact of life in the airline industry: It has never been able to get the end user to cover the costs of delivering its product.

The airline programs

American said that, effective Sept. 1, agencies that book the carrier's flights through Sabre or Amadeus will pay a "source premium" of $3.50 per net booked segment. The source premium also will be imposed on bookings made through Worldspan if the agency does not participate in the "Worldspan Super Access Product" and on bookings made through Galileo/Apollo if the agency does not participate in the "Galileo Content Continuity Program." Agencies that book American flights through the Worldspan Super Access Product, the Galileo Content Continuity Program or any G2 SwitchWorks or Farelogix GDS product will not pay a premium. United introduced a similar program, assessing a $3.50 fee for bookings made outside "qualified" booking channels, effective Sept. 1. However, in addition to the approved channels listed by American, it added Sabre's Efficient Access Solution program and "all Amadeus U.S., U.S. Virgin Islands and Puerto Rico products"; it did not include Farelogix in its list of "qualified" channels. United also said that full content is protected in qualified channels; future full content in other channels is not protected.

The GDS programs

Worldspan's Super Access Product provides access to the Program Airlines' full content. Program Airlines commit not to impose airline content fees on bookings generated through Super Access. The program will serve as the "springboard" for developing new merchandising opportunities and new or enhanced airline booking functionality. Financial arrangements for participating agencies will be "materially different." Worldspan's Subscription Access Product provides access to full content made available by the Program Airlines, including comprehensive published schedules, availability, fares and fare rules the airlines make available to the public and through any GDS. Program Airlines may choose to impose airline content fees on bookings generated through this product. Subscription Access offers customary financial arrangements between Worldspan and its U.S. customers. Worldspan's existing General Access Product will continue to provide fares, fare rules, schedules and availability made available by Program Airlines through this product. Program Airlines may choose to restrict content, and/or impose airline content fees on bookings generated through this product, which offers customary financial arrangements between Worldspan and its U.S. customers. The Galileo Content Continuity Program is an opt-in program that protects subscribers from airline service fees and provides full airline content from participating airlines. It also will include revenue-generating opportunities and other agency value-added services for agencies. Participating agencies agree to "certain financial terms." Sabre's previously announced Efficient Access Solution (TTU, June 13), provides airlines with a discounted booking fee in exchange for full content. Participating agencies are protected from airlines' distribution surcharges and receive reduced incentive payments.

The pitfalls

One of the major problems that agencies face in deciding whether to participate in the programs is the inability of Sabre to reach a new agreement with American Airlines and of Worldspan to reach an agreement with Delta. Those glaring omissions could become very expensive for agencies that choose to participate in the GDS opt-in programs but still are not protected from fees imposed by two of the nation's giant airlines. (Delta has yet to announce that it will impose such fees; however, few major airlines march to their own drummers for very long when it comes to distribution. "Sabre seems to have sold its program to a number of other carriers, but American Airlines is still not buying in," Eastman noted. "Is Sabre asking for something different than it offered other carriers, or is American holding out for what it believes is a fair distribution price?" Aside from those issues, "it is hard for anyone at the TMC level to be pleased when you are told, 'We plan to give you less financial incentives in the future but please continue to do business through us,'" Rock Blanco, chief technology officer of Atlas Travel in Boston, said. "I believe that is why there are distribution alternatives, and we plan to explore and utilize those options that make the most sense for our company and the customers that we service." It is widely assumed that agencies will have to increase their service fees, a move that will no doubt meet with some resistance. But the programs have their supporters. Expedia, which only recently implemented its 3-year-old agreement to shift some bookings from Worldspan to Sabre, expressed support for Sabre's EAS program, saying it provides "an optimal combination of a comprehensive definition of full content, and protections and support for travel agencies." In Sabre's announcement of EAS, Jean McDonnell Covelli, president of The Travel Team in Buffalo, N.Y., said, "We understand the economics for long-term full content commitments have changed, and we believe Sabre's new program represents a balanced solution."

Recent agreements

Over the last few weeks, several five-year, full-content agreements have been signed.

Sabre signed Alaska Airlines, which had opted not to sign a DCA-3 contract in 2003.

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